According to the most recent report on the U.S. Financial Institutions Derivatives trading activity, the U.S. banks held a record amount of precious metals contracts in the first quarter of 2017. Not only did the U.S. banks report a record amount of precious metals contracts, they also held a record amount in notional value of commodity and equity derivative contracts.

There just seems to be a lot of paper floating around in our highly inflated stock, bond and Forex markets. And… there needs to be. Without an ever increasing amount of leverage via their derivative bets and hedging, these markets would be in serious trouble. Furthermore, the practice of using contracts to hedge bets upon on other derivative bets has put the financial market in a highly fragile state.

The Office of the Comptroller of the Currency (OCC) put out their First Quarter 2017 Quarterly Report on Bank Trading and Derivative Activities. In that report, they published the following chart on the U.S. Banks notional value in precious metals contracts:

As we can see in the chart, the overall trend has continued higher since 2000. What is interesting is that the notional value of precious metals contracts held by the U.S. banks is even higher in the first quarter of 2017 versus Q4 2012 when the prices of the precious metals was much higher.

In looking at previous data, there were some quarters that had a higher notional amount of precious metals contracts. This was due to the banks adding contracts as the price of precious metals increased. However, Q1 2017 of $43.6 billion was up considerably versus the $28.3 billion in Q1 2016. 

For example, in Q3 2016, the U.S. banks also held $43.6 billion in precious metals contracts. Again, this was due to a large amount of short contracts held by U.S. banks when the gold price surged to a high of $1,366 in the third quarter of 2016. As the gold price sold off over the next several months, the precious metals contracts declined in the fourth quarter of 2016: